What counts as an appreciable improvement for R&D tax relief claims?

If you have spent any amount of time sifting through the Revenue guidelines around R&D tax relief claims, you may have noticed the phrase ‘appreciable improvement’ come up in a few places.

It is the centrepiece that determines whether the work being conducted can be considered eligible for an R&D tax relief claim.

As such, it is important to understand how Revenue decides whether something is an appreciable improvement.

What does it mean to make an appreciable improvement?

The first barrier that exists in determining a project’s eligibility is the line between innovation and routine work.

The way to know that you have crossed that threshold is by determining whether something counts as an appreciable improvement.

As the phrasing may indicate, an appreciable improvement is something that is better than that which previously existed.

It is determined chiefly by whether other professionals would regard the change as beneficial, but it should also be apparent to non-professionals would understand the benefit of the change.

The non-professional understanding is important as it is unlikely that Revenue will ever be populated by experts in every sector, so any R&D tax relief claim must be understandable to an outside perspective.

While it may seem like a simple concept, an appreciable improvement can manifest in a number of different ways.

The most obvious would be the invention of a new system, object, or process that does something that was not previously possible.

However, it is possible to innovate on that which already exists and still have the work qualify for an R&D tax relief claim.

If an innovative business can change a process, material, device, product or service to make it better than before, then this may count as an appreciable improvement.

As a general outline of how that may manifest, successful R&D tax relief claims may centre on work done to make something more sustainable or most cost-effective, but other work may be eligible.

It is possible to replicate the effect of something that already exists, provided it is applied to something new in an innovative way that results in an appreciable improvement.

What is an intangible appreciable improvement?

Something that is frequently overlooked in an R&D tax relief claim is the work that is done to have an intangible effect.

This is the gaining of knowledge or the discovery of something that was previously unknown.

While it is often easier to quantify the tangible improvements, the improvements made to processes often require an advancement of knowledge.

When considering whether a discovery counts as an appreciable improvement in knowledge, you have to judge it by whether it is entirely novel or just something you did not know.

Learning something is not the same as discovering something and only the latter should be included in an R&D tax relief claim.

How can appreciable improvements be captured in R&D tax relief claims?

The technical narrative serves as the most effective way for detailing way a change counts as an appreciable improvement.

To capture it effectively, the competent professional who worked on the R&D project should make it clear what the existing state of technology was when the project commenced.

This will allow Revenue to understand why the desired change would be an appreciable improvement.

For instance, a project may succeed in doubling the length of time a battery can hold a charge before it depletes, meaning the battery is appreciably improved by the project.

Not every appreciable improvement is as simple to quantify as that, so seeking professional advice and support is wise.

As an R&D tax consultant, we work with accountants and innovative businesses to help them frame R&D projects in a way that Revenue will appreciate.

This often means gaining a deep understanding of what makes a project an appreciable improvement and framing it so that Revenue will accept the validity of the R&D tax relief claim.

The inability to articulate why something is an appreciable improvement is often a cause of difficulty should an R&D tax relief claim face an enquiry.

Where we defend a claim that we did not initially submit, we often find that placing a clearer focus on the appreciable improvement can resolve the enquiry and get the innovative business the funds they deserve.

We are working to make an appreciable improvement in the way that R&D tax relief claims are managed by supporting accountants and innovative businesses.

To discover expert support and guidance for R&D tax relief claims, speak to our team today.

Adam Bointon